Wednesday, April 16, 2014

Innovator's Dilemma Analysis on Plasma TV and Linux

The article “Why Good Companies Fail to Thrive in Fast-Moving Industries” (Christensen 1997) describes the Innovator’s Dilemma and how a big company mishandles disruptive technologies. Christensen raises five principles

Companies depend on customers and investors for resources

Small market don’t solve the growth needs of large companies

Market that don’t exist can’t be analyzed

An organization’s capabilities define disabilities

Technology supply may not equal market demand

I have examined two cases that we could apply this framework to analyze. Panasonic’s failure in plasma TV and Linux OS in the proprietary server OS market.

Panasonic’s Failure in Plasma TV

Panasonic has announced that they will stop producing plasma display TVs by the end of March 2014. I was surprised by the fact that they were still producing them. However, about a decade ago, many people believed that plasma TV would be the promising technology in the future flat screen display.

Panasonic to pull the plug on plasma TV panels

I remember back in early 2000, there were two potential technologies in flat screen display; plasma display panel (PDP) and liquid crystal display (LCD). Back then I read tons of articles comparing pros and cons of PDP and LCD. Major arguments was Plasma is superior technology (thus more expensive) with better image quality and resolution. LCD, on the other hand, was considered relatively cheaper but inferior technology, with its narrow viewing angle, limited brightness, poor response, and image stickiness. However, over the decade, LCD has overcome its inferior characteristics and dominated today’s flat display market.

Although not all of Christensen’s five principles may apply to this case, some of them give us a framework with which we can analyze the decisions behind each side’s strategies.

Companies depend on customers and investors for resources

Panasonic’s executives have emphasized the importance of TV business in their product portfolio. They insisted that PDP would be the future of high resolution TV. Many of customers (including me) and investors supported this.

The below article shows customers and reviewers prefer plasma even now but what market actually chose was cheaper LCD TVs.

In addition Panasonic has invested about $6 billion in PDP over the years. This huge sunk cost may have prevented them from quitting earlier.

An organization’s capabilities define disabilities

While panasonic was leader in PDP, a major player in LCD was Sharp. Their strategies might have been derived from each company’s capability. PDP uses the same technology as fluorescent light. Panasonic has been a major producer of fluorescent lights. Sharp became famous as a LCD calculator maker.

Technology supply may not equal market demand

One of the advantages in PDP was that it was easier to make bigger screen (50 inch or bigger). When I went shopping at that time, I saw huge plasma screen TVs with beautiful pictures. I was amazed with the quality but also wondered who will buy this enormous thing. LCD was not as huge as PDP but it has gradually improved its quality and reduce its price and finally overtook PDP.

In summary, LCD could be a disruptive technology for Panasonic. It was cheaper, inferior substitute which could have threatened its investment in PDP. For Sharp, it won the battle with PDP but it was not a happy ending for them either. LCD has commoditized quickly over past several years and the market became Red Ocean. The market is now dominated by Samsung and LG and Sharp almost went into bankruptcy. Sharp tried to differentiate its product with higher quality display (IGZO panel) but it could not win in fierce price competition.

Linux OS in the Proprietary Server OS Market

As I analyzed in the previous blog post, Linux was developed in 1991 as a potential alternative to proprietary server OS. Interestingly, the reactions from the proprietary server OS vendors were all different. IBM (supplier of AIX) decided to support it. HP (HP-UX) tried to limit its application to lower end x86 server to segregate Linux from its proprietary OS. Sun (Solaris) tried all of the different strategies (fight, segregate, ignore, and embrace) and lost market share after all. Dell ignored it.

Linux at that time could be a disruptive technology to existing server OS and how to handle it caused different outcomes in today’s Linux market.

Companies depend on customers and investors for resources

At the early stage, Linux was not considered to be a very reliable OS and many enterprise users prefered proprietary OS with full support from vendor.

Small market don’t solve the growth needs of large companies

As many customers chose to downsize from mainframe-centric system to UNIX-based distributed systems in 90s, server OS market became highly competitive market with a few players. So their focus might have been on increasing its own product’s share rather than investing on another competing product.

Market that don’t exist can’t be analyzed

At the beginning, there was no Linux enterprise market.

An organization’s capabilities define disabilities

For companies that compete to “lock in” customers, supporting open product is completely different strategy. They would need to “disrupt” their own value to shift from the closed to the open strategy.

Technology supply may not equal market demand

Many of OS suppliers also sell hardware with them. They have long been competing with reliability, processor power, capacity, etc. However, virtualization and cloud technology enabled a cluster of cheap commodity servers to perform as a reliable high performance virtual server. Linux is often prefered in cloud Paas solution.

The growth of Linux has taken some share of existing OS. IBM’s support in Linux may look contradictory to their strategy in its own OS. However IBM has now strong presence in Linux community and gained solid customer base in Linux market to sell its hardware, software, and services.